What the HAMP series shows in excruciating detail is that the current set of procedures to reduce foreclosures and keep people in homes just haven’t worked for the vast majority of borrowers at risk. But what can be done to reverse this trend and achieve the following goals: 1) help borrowers, 2) clear the market and return housing prices to a sustainable level and 3) mitigate the overall financial risk to the economy. These are the near-term crisis points for housing, what hasn’t been resolved by focusing on anti-predatory lending laws or the future of Fannie and Freddie. So what’s out there?

• Government refinancing for underwater homeowners. The Treasury Department and HUD allocated about $3 billion a couple weeks ago for their “Hardest Hit Fund,” designed to help borrowers who are unemployed, with no-recourse loans and modifications. In addition, there’s a refinancing program coming on-line shortly that would be much broader.

The Obama administration on Tuesday will launch its most ambitious effort at reducing mortgage balances for homeowners who owe more than their homes are worth.

Officials say between 500,000 and 1.5 million so-called underwater loans could be modified through the program, the first initiative to target homeowners who are current on their mortgage payments but are at risk of default because they have no equity in their homes. Some experts are warning, however, that the same knots that tied up prior initiatives could do so again.

Under the new “short refinance” program, banks and other creditors that write down mortgages to less than the value of the property can essentially hand off the reduced loan to the government. The process involves refinancing borrowers into loans backed by the Federal Housing Administration.

This is probably as close to a Home Owners’ Loan Corporation as we’re going to get in the current Administration. Like that New Deal-era effort, the government buys up mortgages and refinances them for the borrower (though this is happening a bit in reverse).

The profile of an underwater borrower current on their payments describes many of the people who have contacted me – and reported their negative experience with the HAMP program. This $14 billion dollar program, paid with TARP money, fits their needs much better and could really make a dent, with principal reductions, in a lot of the negative equity out there in the country.

However, there are catches to what I believe is called HARP (Home Affordable Refinance Program). Once again, the banks or the investors in the mortgage have to be willing to write down the value. And loans held by Fannie Mae and Freddie Mac won’t qualify. This is an effort to reach worthless mortgage-backed securities held by investors and throw them out, essentially. If that can help the homeowner in the process, fine. The real problems are that the homeowner will have to take a ding to their credit rating for a principal write-down, and that investors may have legal constraints:

Moreover, investors may not be able to participate as hoped because certain contracts that govern mortgage securitizations say modifications can only proceed if there is an “imminent” risk that the borrower would default.

Reducing balances for borrowers who are current could open mortgage servicers to lawsuits from investors that hold the riskiest slices of bonds. Those investors would be wiped out if balances are greatly reduced. For that reason, “lenders are going to be especially reluctant to do short refinances on folks who are current,” says Alan White, an assistant professor at Valparaiso University in Indiana.

Here, government has a role to play. First, they can absolutely waive the credit reporting, it seems. The borrower did nothing wrong, stayed current, did whatever they had to do to make payment. Their house dropped in value through no fault of their own. Their credit should not take a hit. As for the contracts, and lawsuits, there’s $14 billion here that can be used to settle these cases, which would end up better for the investor than trying to sue to keep worthless pieces of paper on the books.

• Short-sales. HARP isn’t the only program out there, there’s also HAFA, the government’s short-sale program:

In recognition of the fact that some borrowers simply could not make payments even if the payment were lower, whether through job loss or a reduction in income, a more dignified exit strategy was created. HAFA offers a solution for those folks: short sale. It’s where the home is marketed and the lender agrees to accept the proceeds of a market value sale as satisfying the debt for less than what is owed. HAFA also offers a deed in lieu (DIL) of foreclosure, where the lender and borrower agree it would be better for both if the borrower deeds the property back to the lender, thereby saving the lender the time and expense of going through the foreclosure process [...]

If you find a buyer who is willing to pay the pre-approved price, which is not an easy task in this market, you proceed to closing which may take another 45-60 days and then the government will give you $3,000 to help you move. That’s a big win for the borrower as they have not been making payments for anywhere from six to 18 months. And the lender is prohibited from seeking the deficiency on the short sale. And your credit is not hit as hard as a foreclosure. And you get a $3,000 kicker.

This may work for a sliver of deeply indebted borrowers, though the fly in the ointment is trying to actually get rid of the property in this time of near-record lows in home sales.

Banks becoming equity partners with homeowners. Let’s explain that with an example:

Jim has a $100K mortgage from the bank for his $120K house. If the house is currently appraising for $75K, the bank would readjust Jim’s mortgage to $75K and take, say, a 20% ownership stake in the house. The result would be that Jim’s monthly payment would be substantially reduced and he becomes much less likely to “walk away” from his house. The bank has a loan which has immediately become more solid and, say, in 10 years when Jim sells his house, the bank, as a 20% equity partner, can share in the upside.

While the fine print still need to be worked out, this type of private-sector administered program actually cuts to the core of the issue and establishes the foundation for a sustainable housing market.

The problem of the banks not wanting to write down mortgages because they would reveal giant holes in their balance sheets could get counteracted by this policy, where they could still mark an equity stake.

• Right to rent. Dean Baker of the Center for Economic and Policy Research has been the main promoter of this idea, which would allow a borrower facing foreclosure to remain in the home by renting at market rates. This would add stability to the community, cost no taxpayer dollars and allow the bank to at least make something off the home rather than deal with foreclosure, while they retain ownership for the future. There are other benefits, as Baker says, along with the lawmakers who are actually carrying a bill to this effect in Congress:

“Right to Rent immediately gives the homeowner security in their home. They will be allowed to stay there for a substantial period of time, allowing their children to stay in their schools and families to prepare for and plan their future moves,” said Baker in his testimony on Wednesday. “Right to Rent also would make foreclosure much less attractive to investors. This gives investors more incentive to modify loans on their own, without the involvement of the government.”

The following day, “The Right to Rent Act of 2010” was introduced by Rep. Raúl M. Grijalva (D-AZ) and Rep. Marcy Kaptur (D-OH), which would allow homeowners whose homes have been foreclosed to stay in their homes at a fair market rent for up to five years. “The latest statistics on foreclosures and mortgage delinquency rates are an indication of the profound, historic crisis we face and the need for creative solutions like Right to Rent,” said Rep. Grijalva.

Fannie Mae initiated a trial right-to-rent program this year, which anecdotally has had a positive effect, though they won’t release the data.

• Cramdown. Allowing bankruptcy judges to rewrite the terms of primary residences in bankruptcy, just as they can for secondary residences, car loans, yacht loans and virtually every other asset, would have a salutary effect in rebalancing the relationship between the borrower and the lender. Loan servicers would have less of a choice in modifying mortgages and more of an incentive to do so on their terms, lest it be taken out of their hands by a bankruptcy judge. The Cleveland Federal Reserve Bank has produced research showing that cram-down works in precisely this way, by driving the parties involved to make loan modifications.

• Immigration. A new study out this week showed that expanding legal immigration would positively effect the housing market by increasing demand and stabilizing prices:

One major reason why housing prices remain in the doldrums and sales remain slack is that there are simply too many houses for sale. The National Association of Realtors reported that in July, there were 3.98 million existing homes on the market, representing a 12.5-month supply at the current pace of sales. That’s an exceptionally high number (a normal market has a six-month supply). Until hundreds of thousands of those homes sell, the market is likely to stagnate. So, goes the argument, let’s open the borders to immigrants who promise to buy a house. Every year tens of thousands more people apply for the highly coveted H-1B visas than receive them, and even the rejected applicants tend to be highly educated and highly skilled. Expand the number of visas granted, make them contingent on buying a house, and the newcomers will make a fast and substantial dent in the glutted market.

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None of these efforts will necessarily solve this puzzle. Some of these programs would allow prices to fall to a sustainable level; others would simply prop them up. Some of these programs would help some borrowers, but there’s a class out there that have less hope; in particular, holders of second mortgages have seen reluctance on the part of the banks to deal with them at all. Second liens have far more value on the books of the banks than they can get after a modification, and they simply don’t want to take the hit. Some of these programs seem more tilted toward the banks and not community needs, which should be at the top of the list according to Eric Rosengren, president of the Boston Federal Reserve Bank.

But at the least, a combination of the best of these ideas could have a serious impact, not only for banks but for the people who have been savaged by them in the housing market.

- I don’t see why borrowers shouldn’t take a ding to their credit. People have to take a ding all the time for things like losing a job. A ding is no big deal unless you’re engaged in a lot of borrowing, which you probably shouldn’t be if you’re underwater.

- How is HAFA different than a plain old short sale, apart from the $3000 moving allowance (which I’ll bet is taxable)?

- I doubt the banks would be too interested in Yalamanchili’s idea. They are not in the business of owning houses.

- Right to rent sounds like the best idea but the devil’s in the details.

- Cramdown didn’t pass Congress before and certainly won’t pass now.

- Immigration is radioactive. Please don’t bring that into the foreclosure crisis.

I’m in San Diego County and seriously underwater. I decided to give a precious gift to the bank, my home! I missed my first payment Aug. 1 after fourteen months of working on a loan mod, so this is my second month not paying. Interesting things are happening.

I am grateful for my circumstances compared to folks like you. I hope you are young enough to eventually recover and recoup.

Virtually all of my pensions excepting Social Security are gone and I am in the process of applying for a reverse mortgage. Thank God for that program otherwise at these home evaluations I might be left to do the same as you and with no hope of ever having more income..

Oh, dear. I’m retired, but fortunately I have rentals I can live in. I’m actually speaking with real people at the bank rather than doing the paper shuffle these days. It’s a loan they don’t want on the red side of the ledger.

Girlfriend! I thought you were one of the well off peeps. Retiring early, going to Italy, place down in South Americawherever. Best of luck. Now, I don’t feel so bad missing you buying me lunch last month. Times be hard everywhere.

It’s not just homeowners in Phoenix or Miami who are walking away from their mortgages. Tishman Speyer Properties, a big and you would think sophisticated real estate outfit, is doing the stroll on a $4.4 billion mortgage. The company is turning over the keys to more than 11,000 apartments in New York City’s sprawling Peter Cooper Village and Stuyvesant Town apartment complex in lower Manhattan, which it bought in 2006 through a partnership that includes investment firm Blackrock.

I have enjoyed reading this series on the mortgage problem. One thing I believe that must be done is a policy decision on who it is possible to help. There are many people who even with mortgage extension, cramdown, etc, will never be able to afford the home they are in. Any resources going to help these homeowners is money diverted from those who can be helped. Another problem that is not being considered is that many homes built or remodeled since the late 1990′s have been so poorly constructed that many will need more money to repair them at about 15 years than they will be worth.

A very interesting solution was posted by mbbythesea on HuffPo a while back. Here is a copy. It seems to me one of the better solutions I’m aware of.

“The reason I suggest that the 2nd lien be portable to new purchases is so that the RE market can be un-stalled by allowing sales at current market value.

The lien can attach to a new purchase, so people can easily relocate. The average tenure in a house is 5 years. If a person stays for the whole term, the home is generally maintained, so not sure if you are saying that homes would be falling down?

I proposed that the primary mtg be reset to a 30 yr term at the ginnie ‘floor rate’ (currently 5.25%) to get max pyt reduction. the smaller 2nd lien would be 10 yrs, activated when the 1st is paid off—entire term is 40 yrs—not an unreasonable length.

I suggest that the max silent 2nd 0% lien be $90K, so pyt would be low. As a non-dismissable in BK lien tied to RE collateral, it would be difficult to evade. Even if the home became uninsured and fell down, chances are this lien would be covered by the land value. In a typical scenario, the lien would be paid— some out of the estates. If property values recover, perhaps upon resale.

This will help homeowners, investors, the RE industry, communities, the gen economy. It will keep people in their homes with affordable pyts. Not a bailout! Struggling homeowners are only getting a better rate on the part of their loan that has lost equity.”

I am in the process of selling a house as part of an Estate here in Phoenix. With a buyer in hand for an FHA loan we ordered an appraisal. At this point we had a seller and a buyer agreeing on a price. To me that is the market. However the appraiser had something else to say. His appraisal came in $25K lower than the sales price. As part of his research he pulled comparable’s from the recent past. In the valuation of these comps he DEDUCTED thousands of dollars from the value because he said we are in a declining market. Let me be more clear. He found a home that sold; he listed what it sold for; he then reduced its value by several thousand dollars, thereby making the comp value less, and thereby lowering the amount of money the lender would loan. Our buyer did not have the cash to make up the difference between the sales price and the new lower loan amount. The Realtor said this is done all the time. There apparently is no chart, no formula, and the amount of reduction is purely arbitrary. It seems to me that the appraiser is creating a declining market with his appraisals. It is not the value of the homes that create the market nowadays, it is the whimsical mood of the appraiser. How can this be right? The market will continue to drift lower if comps are ignored (the actual market) and loan values are arbitrarily reduced. Surely we cannot start to get out of this real estate mess if there is no floor in the values.

I sort of was hoping I’d be underwater on my house so I could walk away and cover it–in my case, it’s clear that the decline in value is due entirely to the finance industry’s fuckups (and I suspect is true for you too). But as of right now, I expect to JUST break even on a house I put 20% down on 8 years ago and invested a reasonable amount in (bathroom, windows, doors, appliances, etc). So I’ll just sell it and move on, I guess.

DDay: I don’t put much stock in that immigration study. First of all, it stops at 2007, so only includes one recession, and one that was even more regionalized than this one.

Second, it’s focusing at least as much on low-education workers as H1Bs. So your argument about increasing H1Bs doesn’t necessarily follow.

On that line, utterly central to its argument is the assumption that immigrants have poorer communication skills than US-born workers. That’s largely a safe assumption, but in some markets–notably, Silicon Valley skilled workers, where the high number of South Asians who are likely to have BETTER English than US born people–that’s simply not true.

As you know, I’m married to someone who came on an H1B, in engineering. And in that field, I know that there was a move by certain employers to rely on H1Bs to keep wages depressed (it is probably fair to say the workers’ skills were equivalent; communication here being “math” not English, and many of the customers not being English-speaking either). And frankly, that’s a field where recent grads are not able to get jobs.

I’m as pro-immigrant as you get, but in this market, it’s not clear there are jobs anywhere for immigrants, at least not ones that would seriously displace US born workers. And if immigrants can’t get jobs, they’re not going ot be able to afford the houses any more than the US born workers.

What is needed is a massive homeowner demonstration in Washington, demanding either assistance in staying afloat, or banks writing off some loans as bad debts, and selling the houses back to the current homeowners for $1. Taxpayers have already bailed out almost every bank in the land, for?? Wasn’t mortgages, but gambling debts. They deserve to get paid back NOTHING. It is also high past time that people everywhere drop this fake “middle class” gotta have a house (new or fairly) and two new cars in the driveway, with all their children going to college in order for life to be a nice life. It’s all b-sh*t sold to us by banks and government to rake in interest and taxes. Nothing more. We don’t all need to own a home. We don’t all need both spouses working and we don’t all need our children going into debt to the tune of thousands, to further their education for jobs that do not and will not ever exist. As Prez Obama has said, it’s time for a change. He just isn’t it. The only thing these money laundering mafia suits know are mass demonstrations.

I hope that you have requested that the foreclosing agent has standing to foreclose on your house. I live in Los Angeles, and have had the loans on my properties bought and sold many times. With MERS being completely incompetent, I would challenge anybody to prove they own my mortgage. Who knows, maybe you will be one of the lucky ones that gets the foreclosure petition thrown out of court.

The real problem with housing markets is the existence of the quangos (GSEs, quasi-non-governmental organizations or government-sponsored enterprises) like Fannie Mae, Freddie Mac, Ginnie (and Sallie, too, in their context), and the FHA, and the CRA. These Bad Deal measures try to deny the reality that it is necessary to create value before you can have value (or, it might be easier for the concrete-bound in thinking to say that it is necessary to create valuable goods before you can have valuable goods).

All of these Bad Deal gimmicks tried to wave away that reality. But that’s impossible to do. If you give out loans to people who can’t pay them back all you’re doing is temporarily driving up housing prices. Sooner or later the bubble will burst.

If you want to really help out poor people, take some of your disposable income and donate to or work on Habit for Humanity projects.

Legal and illegal immigration of construction workers has driven down quality and prices OT1H, but driven up demand for housing OTOH, while worsening the over-population and over-crowding in the USA, and driven up prices for medical care, increased crime, etc., so it’s been a net negative for the last 50-100 years.

“Every year tens of thousands more people apply for the highly coveted H-1B visas than receive them, and even the rejected applicants tend to be highly educated and highly skilled.”

1. Hardly any applicants are rejected for H-1B visas; the approval rate is well over 90%. If there were stringent standards, the approval rate would be closer to 5%.

2. There is no requirement that H-1B applicants be “highly educated” or “highly skilled”, nor bright or knowledgeable.

The vast majority of H-1B recipients are not “highly skilled” nor especially knowledgeable, and are doing jobs for which there is a plentiful supply of able and willing US citizens. About 100 per year are approved for applicants who lack the equivalent of a US high school diploma and about a thousand per year who lack the equivalent of a US bachelor’s degree, according to reports from USCIS.

The Times Square bomber bozo, Faisal Shahzad, had obtained a student visa and an H-1B, though his GPA at a less than stellar college was relatively low.

Studies carried out from the 1990s through 2010 by researchers from Columbia U, Computing Research Association (CRA), Duke U, Georgetown U, Harvard U, National Research Council of the National Academy of Science, RAND Corporation, Rochester Institute of Technology, Rutgers U, Alfred P. Sloan Foundation, Stanford U, SUNY Buffalo, UC Davis, UPenn Wharton School, Urban Institute, and US Dept. of Education Office of Education Research & Improvement have reported that the USA has continually been producing more US citizen STEM (science, tech, engineering, math) workers than we’ve been employing in these fields.

And even former cross-border bodyshopper Vivek Wadhwa admits that there is no shortage of these skills and that US STEM workers are widely recognized as the best by any measure (except that we’re neither cheap nor easily brow-beaten or cowed). Cross-border body shopper Phiroz Vandrevala (VP at Tata) confessed that it’s all about cheap labor, because he can pay people in India 20% to 25% (and $30K to $50K) less than US workers, $40K to $60K or more of a difference now that they’ve been exempted from FICA taxes. Alan Greenspan concurred that it is a way to drive down compensation to US workers. NSF confessed in he 1980s that their goal of increasing the numbers of student visas and creating the H-1B visa program was to drive down compensation for grad student assistants and people with PhDs.